J.D. Edwards: Back to the Present?

After a couple of death-watch quarters, new management and new markets are making things look a whole lot better than they have in a long time.

The enterprise software market is an unforgiving place, littered with the ruins of many a fine company. And while it's pretty easy to make the transition from hero to goat (ask Ariba, CommerceOne, i2, et. al.), it's a lot harder to reverse the trend. So when J.D. Edwardsposted a turn-around quarter last December, after a couple of death-watch quarters, the question of whether JDE is suddenly "back" became a real one. The answer? From where this skeptic sits, new management and new markets are making things look a whole lot better than they have in a long time.

The company's last quarter shows the beginnings of the turnaround. License revenues were up 54 percent in Q4, at a time when most of JDE's competitors were posting down quarters. On paper, the quarter looks great, compared to last time around, when license sales were down almost 30 percent. But the reality of the 54 percent number is that almost two-thirds of sales in Q4 where holdovers from the previous quarter. This pent-up demand effect, JDE admits, probably won't last. Hence the company's own projection of a 30 percent drop in license revenues for the Q1 of 2002.

But the roller-coaster revenue picture belies some hidden strengths that make it possible that the corner has been turned. The most impressive number comes from the sales of YOUCentric, the CRM company JDE bought last August. JDE managed to close 20 YOUCentric deals in the fourth quarter, despite the fact that they didn't even have a full quarter in which to sell the product. That compares to a total of 37 joint Siebel/JDE deals closed during the 24 month reign of that ill-conceived strategic agreement.

The anatomy of those 20 YOUCentric deals is critical to JDE's future. Of the 20, 14 were sales to existing JDE customers. This is probably the tip of an iceberg of sales that could permeate JDE's 6000-strong customer base. JDE's own research shows that at least one third of the customer base is looking for CRM solutions. And remember, whereas two-thirds of the last quarter's deals were holdovers, it's a safe bet that few if any of these 20 CRM deals fit that bill: pent-up demand for Siebel in the JDE customer base is just another market oxymoron.

The sales of CRM to the installed base were also the vanguard of another important trend for JDE. More than 50 percent of license fees in Q4 came from existing customers, up from 35 percent in Q3. The slump in Q3 was the low-point of a slippery slope that JDE has been on all year. The installed base was understandably nervous about the state of the company, and had been voting its displeasure by withholding contracts. Now they're back, and casting a vote in favor of the company.

A big factor in favor of the positive vote is the new management of JDE. Founder Ed McVaney, to his credit, came back to the company after his hand-picked successor, Doug Massingill, nearly ran the company into the ground during his two years at the helm. McVaney took back the day to day operations in 2000, and has managed to pick a strong team of industry veterans, such as COO Hank Bonde and CMO Les Wyatt, to help run the company. McVaney's recent announcement that he's handing over the reins to Robert Dutkowsky, a veteran of Teradyne, GenRad, and IBM, is another indication that McVaney, at least, feels that it's time to go fishing and let the new guys run the show.

Is the JDE riches to rags to riches story over? The odds are that the turnaround is real, and that JDE is back on track with its customer base. Another good quarter, and I'll cast my vote for giving McVaney the Craig Conway award for turning around a near-disaster. Conway did pretty much the same turnaround job as McVaney, taking an ailing PeopleSoft and putting it very much back on the map. Not coincidentally, Conway's most visible deal when he first took over was the acquisition of CRM vendor Vantive. As long as Dutkowsky stays in the Conway mold, JDE looks to be on the right track.